What is cryptocurrency and how it works: a simple explanation

Nowadays, there is already about a thousand of different cryptocurrencies, the most popular of which is Bitcoin. The demand for cryptocurrency has grown in record time and is still not falling. What is essentially a cryptocurrency and how does it work? In this article, we will try to explain in simple words what a cryptocurrency is, how it works and where it comes from. For more detailed information, you can visit the Forex News TV website, where you will find a lot of useful information about cryptocurrency and crypto-trading.

What is cryptocurrency?

Cryptocurrency is called digital money, encrypted and protected using special algorithms. The main difference between cryptocurrencies from all other types of currencies is absolute decentralization, independence from any financial and state system, banking structures. This is achieved thanks to the principle of operation of the blockchain technology, which allows you to consistently cryptograph the operations.

How does the cryptocurrency work?

All transaction data is stored simultaneously on multiple user computers connected via the Internet. To put it in simple words, a cryptocurrency does not have a single center or control system – it is controlled simultaneously by many interconnected devices. All participants at the same time have equal rights and statuses and can also remain anonymous.

An important characteristic of this self-regulating currency is its direct circulation without the need to involve intermediaries and third parties, the absence of a commission. At the same time, digital currency is generally available, since anyone can access an account with Internet access and appropriate computer facilities. Cryptocurrency does not have a physical counterpart, although it can be exchanged for real currency and used as a payment. Read more about it.

Where does cryptocurrency came from?

How is a digital currency produced without physical form?

Since cryptocurrencies don’t have a single center, they are created accordingly – at once by the whole community of users. These people are called miners and get virtual coins using the computing power of their technology. The principle of mining is based on the confirmation of transactions in the blockchain, for which the user receives a reward from the system.

Cryptocurrency, unlike real money, is not based on anything material like gold, and it also has its own emission limit. The initial blockchain protocol stimulates that only 21 million BTC can be produced, which should occur around 2140.

Conclusion

Rapid growth and popularity have caused the influx of multi-million-dollar investments in this digital currency. Now, cryptocurrency can be described as the largest investment opportunity in the past few years. Currently, there are a large number of different cryptocurrencies, the total market capitalization of which reaches $ 217 billion. The consequence of high demand and volatility was the fact that many companies around the world began to offer services in trading and exchange of cryptocurrencies, which in turn suggests that this phenomenon has a great future.